5th Annual Trends in Cloud Computing - Amazon S3 · 5th$Annual$Trends$in$Cloud$Computing:!Section!1! 3! The&First&Five&Years&of&Cloud&Computing&! In!the!five!years!that!CompTIA!has!been!

5th Annual Trends in Cloud Computing

RESEARCH REPORT

NOVEMBER 2014

!

5th$Annual$Trends$in$Cloud$Computing:!Section!1! 1!

About&this&Research&!CompTIA’s!5th$Annual$Trends$in$Cloud$Computing$study&builds!on!previous!CompTIA!research!in!the!cloud!computing!space,!further!exploring!trends,!challenges,!and!opportunities.!The!objectives!of!this!study!include:!!

B Collect!information!on!endBuser!purchase!drivers!and/or!inhibitors!B Assess!depth!of!cloud!usage!and!ways!in!which!it!is!changing!IT!behavior!B Evaluate!adoption!patterns!among!end!users!and!map!to!channel!business!models!B Track!the!experience!of!channel!partners!offering!cloud!solutions,!building!cloud!practices!B Measure!impact!of!cloud!computing!on!channel!roles/vendor!relationships!

!This!study!consists!of!five!sections,!which!can!be!viewed!independently!or!together!as!sections!of!a!comprehensive!report.!The!individual!sections!and!full!report!can!be!viewed!at!the!cloud!computing!research!page!on!the!CompTIA!website.!!Section!1:!Market!Overview!Section!2:!Usage!Patterns!!Section!3:!Challenges!Section!4:!Business!Model!Analysis!Section!5:!Channel!Dynamics!!This!study!was!conducted!in!two!parts.!!Part!I:!quantitative!online!survey!of!400!IT!and!business!professionals!in!the!United!States!involved!in!IT!decisionBmaking!(aka!end!users).!Data!collection!occurred!during!June!2014.!The!margin!of!sampling!error!at!the!95%!confidence!level!is!+/B!5.0!percentage!points.!Sampling!error!is!larger!for!subgroups!of!the!data.!!!Part!II:!quantitative!online!survey!of!400!IT!firms!in!the!United!States!(aka!channel).!Data!collection!occurred!during!July!2014.!The!margin!of!sampling!error!at!the!95%!confidence!level!is!+/B!5.0!percentage!points.!Sampling!error!is!larger!for!subgroups!of!the!data.!!!For!both!surveys,!CompTIA!worked!with!the!research!firm!Research!Now!to!facilitate!data!collection!using!an!independent!panel.!As!with!any!survey,!sampling!error!is!only!one!source!of!possible!error.!While!nonBsampling!error!cannot!be!accurately!calculated,!precautionary!steps!were!taken!in!all!phases!of!the!survey!design,!collection!and!processing!of!the!data!to!minimize!its!influence.!!CompTIA!is!responsible!for!all!content!contained!in!this!series.!Any!questions!regarding!the!study!should!be!directed!to!CompTIA!Market!Research!staff!at!research@comptia.org.!!!CompTIA!is!a!member!of!the!Marketing!Research!Association!(MRA)!and!adheres!to!the!MRA’s!Code!of!Market!Research!Standards.!&&&

Market Overview

SECTION 1:

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Key&Points&!• In!the!five!years!that!CompTIA!has!been!studying!cloud!computing,!the!topic!has!shifted!from!a!

potential!gameBchanger!to!an!essential!ingredient!of!modern!IT.!IDC!estimates!the!public!cloud!market!to!have!reached!$45.7!billion!in!2013,!and!they!expect!it!to!grow!at!23%!CAGR!through!2018.!On!the!private!cloud!side,!IDC!estimates!that!worldwide!spending!on!hosted!private!cloud!services!will!surpass!$24!billion!by!2016.!!

• Both!channel!firms!and!end!users!are!experiencing!disruption!as!they!move!towards!cloudBenabled!infrastructure!and!solutions.!FortyBone!percent!of!channel!firms!cite!cloud!as!a!catalyst!for!new!directions!requiring!business!transformation.!From!an!end!user!perspective,!over!90%!of!U.S.!firms!claim!some!form!of!cloud!computing,!and!over!60%!of!those!firms!stating!that!cloud!components!represent!at!least!a!third!of!their!overall!IT!architecture.!

!• Although!adoption!rates!are!high!and!market!numbers!are!positive,!there!is!still!confusion!related!to!

cloud!computing.!TwentyBeight!percent!of!survey!respondents!identifying!as!cloud!users!selected!neither!private!nor!public!cloud!as!their!usage!model,!pointing!to!confusion!over!terminology!or!lack!of!recognition!for!their!cloud!model.!Clearing!up!this!confusion!should!not!be!a!primary!activity!but!instead!should!be!used!as!needed!while!discussing!options!for!IT!operations.!

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The&First&Five&Years&of&Cloud&Computing&!In!the!five!years!that!CompTIA!has!been!studying!cloud!computing,!the!topic!has!shifted!from!a!potential!gameBchanger!to!an!essential!ingredient!of!modern!IT.!In!fact,!the!disruption!that!cloud!computing!brings!to!backBend!computing!(traditionally!done!by!onBpremise!mainframes!and!servers)!along!with!the!disruption!that!mobility!brings!to!frontBend!computing!(traditionally!done!by!desktop!or!laptop!PCs)!is!ushering!in!a!new!era!of!IT.!!!The!significance!of!the!new!era!comes!from!the!changes!that!will!take!place!in!organizational!workflow!and!in!the!distribution!of!technology!products!and!services.!From!an!end!user!perspective,!companies!may!initially!view!cloud!computing!as!an!alternative!option!for!existing!processes!and!applications.!Eventually,!businesses!will!move!towards!a!new!architecture!built!on!the!unique!properties!of!cloud!systems.!From!a!channel!perspective,!cloud!computing!will!offer!a!new!platform!for!building!services,!allowing!channel!firms!to!add!new!value!in!distancing!their!clients!from!the!logistics!of!IT!and!focusing!them!on!the!ultimate!goals!they!have!for!technology.!!!The!previous!eras!of!IT!have!lasted!for!25B30!years.!After!five!years,!then,!the!era!of!cloud!computing!is!just!getting!started.!The!next!decade!will!see!cloud!computing!become!even!more!accepted!as!a!foundational!building!block,!and!it!may!even!fade!into!the!background!as!discussions!turn!more!towards!the!management!of!overall!architecture!and!the!services!built!on!that!architecture!that!drive!a!business!forward.!!!!!

What&a&Difference&5&Years&Make&

The!past!5!years!has!seen!major!changes!in!the!field!of!cloud!computing,!both!from!the!perspective!of!the!channel!and!from!end!users.!Here!are!some!comments!from!CompTIA’s!inaugural!cloud!computing!report,!along!with!brief!updates!in!each!area!(with!more!details!to!follow!throughout!this!report).!

• “A&significant&chunk&of&the&channel&is&cautiously&dipping&into&cloud&computing”:&The!channel!is!now!all!in!on!the!cloud,!with!93%!of!firms!characterizing!their!cloud!solutions!as!mature!or!somewhat!mature.&&

• “Both&the&channel&and&end&user&communities&crave&a&more&authoritative,&uniform&definition&of&cloud&computing”:!Most!cloud!discussions!no!longer!include!definitions,!but!that!is!more!due!to!a!broad!interpretation!of!cloud!rather!than!agreement!on!a!specific!definition.

• “The&sweet&spot&for&the&channel&is&selling&cloud&to&mediumIsized&companies”:!Adoption!at!mediumBsized!companies!is!strongest!(97%),!though!large!companies!are!basically!in!the!same!zone!(96%).!Small!firms!lag!at!84%.

• “Transitioning&to&the&cloud&will&mean&dealing&with&existing&IT&investments&and&systems&and&undertaking&the&integration&work&involved&in&tying&multiple&cloud&and&onIpremise&environments&together”:!While!much!of!the!discussion!over!the!past!five!years!has!focused!on!initial!migrations!to!the!cloud,!many!end!users!are!now!performing!secondary!migrations!and!quickly!building!a!multiBcloud!environment!that!includes!onBpremise!systems.

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!Sizing&the&Cloud&Market&!As!cloud!computing!has!matured!from!an!emerging!architectural!option!to!a!disruptive!new!platform!for!many!IT!services,!the!market!view!has!changed.!In!the!early!days,!most!analyst!firms!treated!cloud!computing!as!a!single!entity;!CompTIA’s!first!cloud!report!included!estimates!from!Gartner!that!predicted!overall!cloud!revenue!to!grow!from!$46.4!billion!in!2008!to!over!$150!billion!by!2013.!The!only!additional!breakdown!of!the!market!was!along!the!major!service!models—SaaS,!PaaS,!and!IaaS.!At!the!time,!IDC!was!projecting!the!SaaS!market!to!reach!$40.5!billion!by!2014.!!Two!years!later,!the!estimates!reflected!significant!progress!in!the!perception!of!cloud!computing!as!a!broad!platform.!Gartner’s!estimates!for!cloud!revenue!now!included!service!models!by!default.!2015!projections!pegged!SaaS!at!$22.1!billion,!PaaS!at!$1.8!billion,!and!IaaS!at!$22!billion.!The!market!was!also!growing!faster!than!predicted.!These!2015!projections,!totaling!$45.9!billion,!were!17%!higher!than!Gartner’s!2015!projections!from!the!previous!year.!!More!importantly,!Gartner!used!two!additional!categories!for!cloud!revenue.!The!first,!Business!Process!as!a!Service,!included!indirect!investments!made!for!cloud!computing!(such!as!datacenter/network!upgrades)!along!with!overall!processes!that!were!built!using!cloud!components!(such!as!payroll!or!expense!management).!The!second!was!Cloud!Management!and!Security,!two!specific!services!surrounding!the!use!of!cloud!resources.!Together,!these!categories!accounted!for!over!70%!of!Gartner’s!total!cloud!projection!of!$207!billion!for!2016.!!It!has!now!become!rare!to!find!estimates!that!encompass!the!full!set!of!activities!that!take!place!in!the!cloud!arena.!Projections!may!break!things!down!by!service!model,!deployment!model,!or!business!process.!Consider!the!following:!!

• IDC!reports!that!the!worldwide!public!cloud!services!market!reached!$45.7!billion!in!2013!and!is!projected!to!grow!at!a!compound!annual!growth!rate!(CAGR)!of!23%!through!2018.!They!break!this!total!down!by!SaaS!($32.9!billion),!PaaS!($6.4!billion),!and!IaaS!($6.4!billion).!They!also!identify!secondary!markets!that!are!thriving!as!standalone!segments.!!

• For!private!cloud,!IDC!estimates!that!worldwide!spending!on!hosted!private!cloud!services!will!surpass!$24!billion!by!2016.!This!includes!dedicated!private!clouds,!where!physical!resources!are!reserved!exclusively!for!single!users,!and!virtual!private!clouds,!where!a!public!cloud!provider!offers!shared!virtual!resources!with!greater!degrees!of!customer!control!and!security.!Obviously,!there!is!room!for!interpretation!between!virtual!private!cloud!use!and!public!cloud!use.!

Secondary&Markets&in&IDC&Public&Cloud&Definition&Secondary!Market! 2013!Revenue!Enterprise!Resource!Management!(ERM)!Applications! $10,780!

Customer!Relationship!Management!(CRM)!Applications! $8,135!

Server! $3,981!

Collaborative!Applications! $3,374!

Security!Software! $2,922!

Other!markets! $16,556!

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!• Many!different!cloudBrelated!segments!are!blossoming!into!robust!markets!of!their!own.!

Infonetics!Research!predicts!the!managed!cloud!security!market!will!grow!at!11%!CAGR!through!2017,!resulting!in!$9.2!billion!in!revenue.!Technavio!expects!the!cloud!system!management!software!market!to!grow!at!33%!CAGR!over!the!2013B2018!period.!MarketsandMarkets!believes!that!the!cloud!analytics!market!will!generate!$16.5!billion!in!revenue!by!2018.!These!areas!and!many!others!are!developing!into!substantial!opportunities!as!companies!become!more!grounded!in!cloud!technology.!

!After!five!years,!the!industry!has!reached!a!point!where!it!is!difficult!to!talk!generally!about!the!“cloud!market.”!The!breadth!of!offerings!based!on!a!cloud!foundation!has!grown,!and!many!companies!are!taking!steps!beyond!initial!cloud!moves!and!considering!strategies!that!assume!cloud!components.!!The&Transformation&of&Business&!From!channel!firms!to!end!users,!most!companies!are!experiencing!a!drastic!change!in!the!way!they!approach!IT!and!overall!business!operations!thanks!to!the!cloud.!Last!year,!CompTIA!established!models!for!both!channel!business!models!and!cloud!adoption!progression:!!

!!!!!!

Channel&Perspective&!!!!!!!!

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End&User&Perspective&!!!!

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!!Today’s!IT!channel!continues!to!undergo!a!transition!along!with!the!rest!of!the!industry,!triggered!by!changes!in!the!ways!that!customers!buy!IT!goods!and!services,!new!types!of!competition!and!the!forward!march!of!themes!such!as!cloud!computing!and!mobility.!In!effect,!the!channel!has!had!to!step!up!its!game,!morphing!in!some!cases!from!a!straight!reseller!of!products!–!particularly!hardware!–!to!a!multifaceted!provider!of!services!and!solutions.!While!some!firms!will!maintain!status!quo,!most!will!shift!their!business!model!or!at!least!embrace!a!hybrid!approach,!adding!a!services!component!alongside!a!productBbased!revenue!stream.!!For!those!moving!down!the!path!of!business!transformation,!the!cloud!is!the!primary!driver.!In!CompTIA’s!4th$Annual$State$of$the$Channel!study,!4!in!10!respondents!cited!cloud!as!pushing!them!in!new!directions.!Cloud’s!influence!spans!fairly!evenly!across!all!size!companies,!with!medium!and!larger!firms!reporting!it!as!a!primary!driver!in!slightly!higher!numbers!than!the!smaller!channel!firms.!Half!of!all!respondents!said!that!attaining!cloud!expertise!is!going!to!be!“very!important”!to!the!future!prospects!of!an!individual!channel!firm;!half!also!placed!as!much!import!on!undertaking!managed!services!and!becoming!proficient!in!selling!services.!!Cloud!itself!is!subtext!to!many!of!the!other!business!transformation!drivers.!For!example,!customer!demand!for!different!delivery!models!for!IT,!a!primary!change!agent,!can!be!directly!related!to!the!emergence!of!the!cloud!computing!business!model.!Cloud!offers!an!alternative,!and!fairly!attractive,!way!to!provide!technology!services!to!the!end!customer!beyond!selling!them!the!speeds!and!feeds!of!an!

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IT!product.!Think!of!the!widespread!use!of!SaaS!applications!such!as!Google!Docs!or!cloudBbased!storage!and!other!compute!infrastructure!from!the!likes!of!Amazon!or!Microsoft.!!

!As!channel!firms!respond!to!the!changes!in!the!industry!driven!by!cloud!computing,!they!are!discovering!which!business!model!fits!their!current!practice.!The!broad!adoption!of!different!cloud!business!models!reflects!the!diverse!makeup!of!the!channel,!and!the!plans!for!future!adoption!point!to!the!forces!driving!transformation!for!many!firms.!!!The!different!business!models!directly!apply!to!the!different!challenges!being!faced!by!end!users!at!each!stage!of!cloud!adoption.!Although!end!user!firms!may!be!somewhat!aggressive!in!classifying!their!adoption!progress,!the!basic!pattern!likely!holds!true,!with!the!bulk!of!firms!in!the!middle!stages!of!adoption.!In!general,!cloud!computing!has!definitely!passed!into!a!mass!adoption!phase,!with!over!90%!of!U.S.!firms!claiming!some!form!of!cloud!computing!and!over!60%!of!those!firms!stating!that!cloud!components!represent!at!least!a!third!of!their!overall!IT!architecture.!Software!is!probably!the!piece!of!architecture!that!is!most!quickly!becoming!cloudBbased,!and!there!is!still!plenty!of!headroom!for!growth:!With!Gartner!projecting!the!total!enterprise!software!market!to!reach!$320!billion!in!2014,!the!$22!billion!that!comes!from!SaaS!represents!just!6.9%!of!the!market.!!In!2011,!CompTIA!found!that!“mediumBsized!businesses!are!utilizing!cloud!more!than!small!or!large!businesses.”!This!trend!remains!true!today;!although!mediumBsized!firms!and!large!firms!are!identical!in!overall!adoption!rate,!mediumBsized!firms!tend!to!have!a!greater!percentage!of!cloudBbased!architecture.!These!companies!still!represent!a!sweet!spot!of!sorts!for!cloud!computing—they!have!sizable!IT!requirements!but!are!also!not!constrained!by!legacy!systems!and!complexity.!!Still&Confused—But&Does&it&Matter?&!All!of!the!strong!channel!momentum!and!adoption!progress!overshadows!an!issue!that!has!been!present!in!cloud!computing!discussions!since!the!launch!of!Amazon!Web!Services!in!2006:!what!exactly!is!the!cloud?!In!the!early!days!of!cloud!computing,!there!was!healthy!debate!between!those!who!felt!

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cloud!represented!a!massive!shift!in!IT!and!those!who!felt!like!cloud!was!just!a!new!marketing!term.!Today,!that!debate!has!mostly!died!down,!but!it!is!not!clear!that!the!industry!has!reached!resolution.!!Hints!of!confusion!can!be!seen!in!the!deployment!model!that!end!users!identify!in!use!at!their!companies.!Forty!percent!of!respondents!who!identified!as!cloud!users!selected!private!cloud,!and!32%!selected!public!cloud.!These!two!options!should!account!for!100%!of!cloud!usage!(with!some!companies!using!both!options),!but!28%!of!respondents!did!not!select!either,!pointing!to!confusion!over!terminology!or!lack!of!recognition!for!their!cloud!model.!!

!The!balance!between!public!cloud!and!private!cloud!is!also!a!point!worth!considering.!Other!studies!have!also!seen!strong!momentum!towards!private!clouds,!such!as!InformationWeek’s!study!finding!that!the!percentage!of!enterprises!reporting!functional!private!clouds!more!than!doubled!from!21%!to!47%!between!April!2012!and!December!2013.!However,!there!are!also!studies!that!indicate!public!cloud!as!the!dominant!model,!such!as!RightScale’s!2014$State$of$the$Cloud$Report!finding!that!87%!of!all!organizations!are!using!public!cloud!systems.!!

!!Finally,!vendor!awareness!and!usage!seems!to!indicate!confusion!in!the!market.!Most!cloud!pundits!recognize!Amazon!Web!Services!as!the!leader!in!public!IaaS,!yet!Amazon!falls!behind!Microsoft,!Google,!and!IBM!as!a!company!CompTIA!respondents!recognize!as!a!top!choice!in!this!field.!Similarly,!the!top!system!companies!claim!to!use!for!private!cloud!construction!is!VMware’s!vCloud,!but!this!does!not!

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track!with!industry!observations!that!OpenStack!has!the!greatest!momentum.!Instead,!companies!are!likely!aware!of!using!VMware!for!virtualization!and!are!assuming!that!they!use!the!same!vendor!for!private!cloud!(this!finding!was!corroborated!by!similar!data!in!RightScale’s!study).!!The!confusion!can!most!likely!be!traced!back!to!the!defining!characteristics!of!a!true!cloud!solution.!According!to!the!NIST!definition!that!has!been!in!place!since!CompTIA’s!inaugural!study,!those!characteristics!are!broad!network!access,!resource!pooling,!measured!service,!onBdemand!self!service,!and!rapid!elasticity.!An!obvious!problem!with!these!characteristics!is!that!they!themselves!require!some!definition.!For!example,!how!rapidly!must!systems!grow!or!shrink!to!constitute!rapid!elasticity?!Other!characteristics!leave!some!room!for!interpretation.!For!example,!a!provider!might!claim!that!a!twoByear!contract!with!monthly!charges!constitutes!measured!service.!!An!additional!characteristic!has!crept!into!many!cloud!discussions—the!tendency!to!classify!a!system!as!cloudBbased!if!it!is!externally!managed.!With!Amazon!Web!Services!acting!as!the!primary!example!of!cloud!computing!after!its!launch!in!2006,!many!people!were!drawn!to!a!discussion!of!cloud!computing!becoming!a!sort!of!utility.!External!provision!and!management!fit!into!this!framework,!even!though!the!defining!cloud!characteristics!can!be!provided!on!internal!systems!with!the!right!software.!!There!are!many!available!computing!models.!Some!fit!a!strict!NIST!definition!of!cloud!computing!and!some!only!share!a!subset!of!characteristics.!Ultimately,!end!users!will!choose!the!systems!that!closest!meet!their!needs!for!function!and!cost.!Overlooking!individual!characteristics!may!lead!to!a!competitive!disadvantage,!but!this!is!a!longBterm!risk!as!many!companies!are!still!gaining!familiarity!with!virtualization!or!hosted!models.!For!now,!agreeing!on!nomenclature!is!not!critical.!It!is!more!important!to!understand!how!to!use!all!the!available!options!to!build!IT!systems!that!drive!today’s!businesses!forward.!!!

Usage Patterns

SECTION 2:

!


Key&Points&!• As!cloud!components!are!becoming!more!prevalent!in!IT!architectures,!more!companies!are!relying!

on!cloud!computing!for!business!processes!such!as!storage!(59%),!business!continuity/disaster!recovery!(48%),!and!security!(44%).!This!strong!usage!and!strong!market!indicators!show!that!cloud!computing!is!becoming!a!default!part!of!the!IT!landscape.!!

• Although!adoption!rates!are!high!and!market!numbers!are!positive,!there!is!still!confusion!related!to!cloud!computing.!This!confusion!will!hinder!end!users!and!channel!firms!from!fully!transforming!their!IT!practices!and!offerings.!Only!46%!of!channel!firms!with!cloud!offerings!described!their!cloud!business!as!completely!mature—an!established,!strategic!part!of!business!plans.!

!• The!impact!of!cloud!computing!will!continue!to!drive!companies!to!clarify!issues!around!usage!and!

move!towards!greater!maturity!with!the!model.!End!users!still!report!a!wide!range!of!benefits,!led!by!the!ability!to!cut!costs.!Approximately!half!of!channel!firms!see!faster!revenue!growth!and!larger!profits!from!cloud!offerings!than!from!traditional!offerings.!

!!&&&&&&&&&&&&&&&&&&&&&&&

!


Building&Towards&Cloud:Enabled&Architecture&!Cloud!computing!has!become!an!accepted!option!for!companies!as!they!plan!out!their!systems!and!architecture,!and!each!company!will!move!through!distinct!phases!of!adoption!as!they!incorporate!cloud!components.!In!last!year’s!cloud!study,!CompTIA!defined!four!stages!in!the!cloud!adoption!progression!for!companies!who!were!adopting!cloud!for!their!own!business!operations!(aka!end!users).!Companies!will!enter!this!progression!and!move!through!stages!based!on!several!factors,!including!technical!knowChow,!risk!tolerance,!and!budgetary!constraints.!!

!!In!the!Experiment!phase,!companies!are!simply!building!familiarity!with!the!cloud!model,!including!terminology!and!basic!working!principles.!During!this!stage,!a!company!may!test!out!cloud!systems!by!building!sample!virtual!instances!or!using!software!on!a!free!trial!basis.!These!proofCofCconcept!undertakings!will!most!often!be!performed!on!public!cloud!systems,!since!they!are!readily!available!and!require!minimal!investment.!Companies!may!investigate!the!pros!and!cons!of!private!clouds,!but!very!few!will!begin!building!out!those!systems!at!this!time.!!Next,!companies!will!move!into!a!Non:critical&Use!stage.!Here,!cloud!systems!will!actually!be!used!for!operational!workflow,!though!businesses!will!not!choose!to!migrate!their!most!important!systems!or!most!sensitive!data.!Typically,!a!peripheral!system!will!be!chosen,!which!still!allows!companies!to!learn!

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the!fine!details!behind!a!cloud!transition!and!also!gain!a!firstChand!appreciation!for!the!integration!challenges.!!Once!a!certain!level!of!comfort!with!the!cloud!model!has!been!achieved,!companies!will!move!into!Full&Production.!Businesses!at!this!stage!have!understood!and!mitigated!their!security!concerns!and!view!cloud!systems!as!a!viable!option!for!most!IT!operations,!including!some!systems!that!may!be!businessCcritical.!Policies!and!procedures!will!be!built!and!modified!as!firms!change!the!way!they!procure!and!utilize!technology.!!The!final!step!in!the!progression!is!a!move!to!Transformed&IT.!Those!companies!that!have!started!up!over!the!past!five!to!seven!years,!typically!having!built!all!their!business!systems!around!cloud!solutions,!are!the!primary!residents!of!this!category!at!this!point!in!time.!Here,!companies!are!not!simply!moving!existing!systems!or!applications!into!the!cloud;!they!are!changing!the!way!they!work!in!order!to!reap!the!full!benefit.!

!In!this!final!stage,!something!interesting!happens:!the!cloud!is!no!longer!a!distinct!focus!area.!Rather!than!taking!specific!actions!for!cloud!services,!such!as!technical!migrations!or!workflow!restructuring,!companies!consider!the!entire!architecture.!With!applications!in!place!and!policies!set,!businesses!can!concentrate!on!the!operation!of!IT!and!the!innovative!way!they!would!like!to!use!their!technology!to!drive!growth.!Instead!of!being!a!focal!point,!cloud!is!deeply!integrated!into!new!forms!of!IT!operations!and!management.!

!Even!with!the!typical!inflation!that!comes!with!selfCclassification,!very!few!companies!place!themselves!in!the!Transformed!IT!stage.!Full!Production!may!be!slightly!inflated,!but!the!majority!of!firms!today!should!fall!somewhere!in!the!middle!two!categories.!A!healthy!number!of!firms!are!still!entering!the!market,!led!by!small!firms!and!those!firms!that!may!have!a!more!cautious!approach!based!on!technology!familiarity!or!regulatory!concerns.!!Solving&Challenges&in&Each&Stage&!As!cloud!computing!was!maturing,!security!was!a!major!hurdle!that!kept!companies!from!entering!the!Experiment!phase.!Other!factors!such!as!performance!or!reliability!also!played!a!role.!Now,!with!the!adoption!rate!over!90%,!there!are!few!variables!that!are!still!keeping!companies!from!exploring!cloud!options.!!!!The!barriers!to!entry!have!largely!been!replaced!by!the!challenges!that!come!as!businesses!implement!cloud!systems.!The!first!challenge!is!simply!in!moving!from!one!stage!to!another.!This!could!come!as!a!surprise!to!some!firms,!as!they!may!hold!an!expectation!that!the!initial!migration!and!integration!pose!the!largest!obstacles!to!smooth!cloud!operations.!!!

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In!fact,!companies!that!have!progressed!through!several!adoption!stages!find!that!the!transitions!become!more!difficult!as!the!adoption!strategy!moves!forward.!Of!those!companies!that!have!progressed!to!the!NonCcritical!Use!stage,!28%!rate!the!transition!from!the!Experiment!stage!as!requiring!significant!effort.!On!the!other!end!of!the!scale,!63%!of!companies!that!have!progressed!to!the!Transformed!IT!stage!rate!the!final!transition!as!requiring!significant!effort.!!!

!!Larger!companies!tend!to!have!more!maturity!in!cloud!adoption!than!smaller!companies,!but!they!also!have!more!difficulty!in!making!transitions.!Consider!the!transition!between!NonCcritical!Use!and!Full!Production:!43%!of!large!companies!said!that!this!transition!required!significant!effort,!compared!to!just!25%!of!small!businesses.!While!the!large!companies!have!more!resources!that!they!can!devote!to!the!problem,!they!also!have!much!greater!complexity.!Solution!providers!assisting!small!businesses!should!take!note!that!cloud!computing!may!open!new!doors!for!their!clients,!but!adding!complexity!to!workflow!or!architecture!may!complicate!the!route!to!cloudCbased!operations.!!Within!each!stage,!there!are!different!challenges!that!rise!from!adopting!cloud!computing.!Integration,!of!course,!is!a!constant!challenge!from!stage!to!stage.!The!bulk!of!the!cost!and!effort!for!any!IT!project!is!typically!consumed!by!integration,!and!cloud!computing!is!no!different.!If!anything,!cloud!integration!may!be!even!more!challenging!for!firms!as!it!requires!web!APIs!that!may!be!unfamiliar!to!the!technical!team.!Furthermore,!the!technical!team!may!not!always!be!directly!involved!in!procurement.!Integration!

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!


may!be!complicated!by!lines!of!business!procuring!their!own!applications!without!being!aware!of!how!

they!will!fit!into!the!overall!system.!

!

In!the!Experiment!stage,!challenges!also!include!ROI!calculation!and!the!cloud!learning!curve.!As!

companies!build!their!understanding!of!cloud!computing!in!preparation!for!business!use,!they!need!help!

in!determining!the!associated!costs!and!becoming!proficient!with!the!available!options.!Education!is!

especially!important!for!all!businesses—the!learning!curve!was!cited!as!a!challenge!by!40%!of!large!

companies,!34%!of!mediumCsized!firms,!and!40%!of!small!businesses.!

!

As!companies!move!into!the!NonCcritical!Use!stage,!the!technical!challenges!become!more!apparent.!

The!learning!curve!now!focuses!on!the!details!behind!a!cloud!migration,!such!as!the!security!that!will!be!

required!and!the!actual!application!usage!that!drives!the!solution!cost.!In!addition,!companies!grow!

concerned!about!the!portability!of!their!cloud!application.!ThirtyCfour!percent!of!companies!identify!

vendor!lockCin!as!a!challenge!for!the!NonCcritical!Use!stage,!compared!to!just!23%!of!companies!who!

identify!this!as!a!challenge!for!the!Experiment!stage.!

!

Moving!forward,!the!challenges!begin!to!shift!from!technical!to!businessCrelated.!The!top!two!challenges!

that!companies!cite!in!the!Full!Production!Stage!are!making!changes!to!IT!policy!(43%)!and!modifying!

workflow!(41%).!This!is!when!technical!expertise!must!be!matched!with!business!knowledge.!Businesses!

are!finding!that!the!greatest!benefits!of!cloud!computing!are!not!necessarily!the!costCrelated!perks!that!

come!from!swapping!systems,!but!instead!are!the!agility!and!speed!that!come!from!reconfiguring!

operations.!

!

This!realization!leads!into!the!final!stage!of!Transformed!IT,!where!workflow!modification!is!the!top!

challenge.!As!companies!reCarchitect!their!business!processes!(including!systems,!applications,!and!

workflow),!they!realize!that!even!further!investment!is!needed!to!reach!an!optimal!state.!FortyCfour!

percent!of!companies!cite!higherCthanCexpected!costs!as!a!challenge!in!this!stage,!showing!that!the!

opportunity!for!valuable!cloud!services!certainly!does!not!end!after!the!first!migration.!!

!

Moving&to&a&Multi:Cloud&Environment!!

The!actions!that!companies!are!taking!following!their!first!migration!act!as!further!proof!of!the!

opportunities!that!exist.!By!gaining!handsCon!experience!with!cloud!systems,!businesses!are!able!to!

compare!the!theoretical!to!the!practical!and!make!decisions!on!how!to!best!optimize!their!

infrastructure.!

!

The!number!of!companies!making!secondary!migrations!is!rising.!Last!year,!44%!of!companies!had!

moved!either!infrastructure!or!applications!from!one!public!cloud!to!another,!25%!of!companies!had!

moved!from!a!public!cloud!into!a!private!cloud,!and!24%!of!companies!had!moved!from!a!public!cloud!

back!to!an!onCpremise!system.!The!primary!takeaway!from!all!this!movement!is!that!no!one!model!is!the!

best!answer!for!every!workload.!Companies!will!be!utilizing!every!type!of!system!as!they!find!the!multiC

cloud!approach!that!works!for!them,!and!the!management!of!all!these!systems!will!be!a!significant!

challenge!for!most!firms.!!

!

The!reasons!for!secondary!migrations!vary!depending!on!the!type!of!transition.!Movement!between!two!

public!cloud!providers!could!be!driven!by!a!number!of!factors,!such!as!better!offerings/features!(cited!by!

44%!of!companies!making!such!a!move),!security!concerns!(32%),!cost!(31%)!or!a!desire!for!open!

!


standards!(31%).!Movement!back!to!an!onCpremise!system!was!primarily!driven!by!security!(60%).!Other!reasons!for!such!a!move!included!failure!to!integrate!(27%)!and!failure!to!achieve!cost!goals!(21%).!!!

!!Of!course,!these!migrations!do!not!indicate!wholesale!moves!from!one!model!to!another.!A!company!may!move!a!number!of!applications!to!a!public!cloud!provider!in!early!stages!of!adoption,!then!move!some!of!those!applications!to!a!private!cloud!and!some!back!on!premise!while!leaving!some!in!the!original!cloud!provider.!Not!only!is!it!challenging!to!determine!the!correct!model!for!application,!but!it!also!requires!effort!to!make!the!transition.!TwentyCsix!percent!of!companies!migrating!from!one!public!cloud!to!another!said!that!the!secondary!move!actually!required!more!effort!than!the!initial!project.!This!level!of!effort!is!starting!to!be!understood!by!companies!who!are!in!earlier!stages!of!adoption!and!anticipating!a!secondary!move.!ThirtyCthree!percent!of!companies!estimate!that!a!secondary!migration!will!require!more!effort!than!the!first.!Nearly!40%!of!these!companies!expect!to!make!such!a!move!in!the!next!year,!citing!reasons!such!as!security!(49%),!cost!(49%),!and!offerings!or!features!(42%).!Solution!providers!will!have!to!be!aware!of!the!many!different!vendors!in!this!new!landscape,!and!they!may!turn!to!distributors!to!act!as!an!initial!filter!for!discovering!the!best!options.!

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ChallengesSECTION 3:

!


Key&Points&!!• Companies!moving!through!the!progression!model!towards!Transformed!IT!will!need!to!understand!

the!various!applications!that!are!being!used!and!choose!the!best!model!for!running!those!applications.!The!most!common!cloud!applications!are!currently!productivity!suites!and!email,!but!many!other!applications!are!becoming!cloud!candidates,!especially!in!the!SMB!space.!!!

• Rogue!IT,!where!a!line!of!business!procures!technology!without!involving!the!IT!department,!is!not!necessary!rampant!but!is!still!a!real!phenomenon.!Only!12%!of!companies!say!they!do!not!consult!with!the!IT!department!or!allow!them!to!give!final!approval,!but!issues!such!as!integration!and!security!are!still!reason!for!businesses!to!build!a!procurement!process!that!allows!everyone!to!voice!their!concerns.!

!• As!businesses!continue!to!transform!to!utilize!cloud!IT,!there!will!be!a!series!of!internal!changes!that!

will!take!place.!Deciding!on!new!policies/procedures,!hiring!and!retraining!to!improve!the!IT!department!skill!mix,!and!contracting!with!outside!firms!are!all!activities!that!companies!undertake!as!they!reconfigure!their!operations.!

!!&&&&&&&&&&&&&&&&&&&&&&

!


Restructuring&Operations&on&a&Cloud&Foundation&!As!companies!move!more!and!more!towards!a!cloudCbased!architecture!(as!described!in!Section!2),!they!will!focus!less!on!cloud!infrastructure!and!more!on!business!process!and!workflow.!This!is!a!major!part!of!the!transition!to!Transformed!IT:!choosing!new!applications!(or!rebuilding!applications)!in!order!to!take!full!advantage!of!cloud!characteristics!and!building!new!policies!and!procedures!that!enable!greater!business!agility.!!

!!The!first!step!in!this!operational!journey!is!to!understand!the!applications!that!are!being!used!and!choose!the!best!model!for!running!those!applications.!A!large!part!of!the!cloud!discussion!over!the!past!five!years!has!centered!on!software!development,!with!developers!now!able!to!quickly!create!test!environments!and!build!applications!outside!the!constraints!of!an!onCpremise!system.!The!discussion!is!quickly!turning!to!those!applications,!which!can!take!advantage!of!elastic!resources!and!cloudCbased!data!stores.!Obviously,!the!addressable!market!for!application!usage!is!far!greater!than!for!application!development.!!Business!productivity!suites!and!email!are!the!two!most!popular!applications!that!companies!are!placing!in!the!cloud.!It!is!very!likely!that!some!of!these!applications!are!simply!hosted!applications,!but!this!is!a!good!example!of!a!case!where!differences!in!terminology!are!less!important.!For!most!end!users,!the!primary!concern!for!an!application!like!email!is!that!the!routine!upkeep!and!maintenance!are!performed!

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!


externally!rather!than!tying!up!internal!resources.!Since!the!main!function!of!these!applications!is!largely!unchanged!between!a!hosted!model!and!a!cloud!model,!the!few!differences!that!exist!may!be!too!subtle!to!make!an!impact!for!many!users.!!With!other!applications,!though,!the!cloud!may!be!opening!new!possibilities.!CompTIA!has!previously!noted!that!mediumCsized!businesses!represent!a!sweet!spot!for!cloud!operations!because!their!infrastructure!needs!are!growing!while!their!resources!are!still!fairly!constrained.!The!current!application!usage!patterns!validate!this!position—mediumCsized!businesses!are!often!closer!to!large!firms!in!cloud!application!usage,!and!they!are!actually!leading!large!firms!in!some!instances.!This!shows!that!mediumCsized!firms!are!more!aggressively!targeting!cloud!applications!as!a!way!to!expand!their!technology!footprint!beyond!what!they!could!achieve!through!traditional!means.!!

!!The!availability!of!cloud!applications!creates!a!new!issue!for!businesses.!The!ease!of!access!and!simplicity!of!use!allow!individual!departments!to!utilize!their!own!budget!to!procure!applications!(or!infrastructure,!for!that!matter).!This!behavior,!known!as!rogue!IT!since!the!IT!function!is!sometimes!bypassed,!is!appealing!to!business!units!since!they!have!the!best!knowledge!of!what!they!require!to!achieve!their!goals.!While!rogue!IT!may!not!yet!be!rampant,!it!is!growing:!companies!in!the!CompTIA!survey!saw!lines!of!business!procuring!cloud!applications!anywhere!from!18%!to!36%!of!the!time,!a!slight!increase!from!last!year’s!numbers.!!

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The!main!issue!with!rogue!IT!is!whether!or!not!the!IT!department!is!being!left!completely!out!of!the!

loop,!but!most!instances!of!LOB!procurement!still!keep!IT!involved!in!some!way.!In!fact,!the!incidence!of!

IT!departments!only!being!informed!or!not!involved!at!all!is!dominated!by!small!companies,!which!often!

do!not!have!an!IT!function.!For!solution!providers!serving!the!SMB!space,!this!will!be!an!area!to!watch!as!

they!increasingly!act!as!the!overarching!IT!function!rather!than!simply!providing!point!solutions.!

!

Determining!the!best!process!for!procurement!will!be!a!major!task!for!companies!of!all!sizes!moving!

forward.!Allowing!the!LOB!to!procure!technology!allows!for!greater!agility,!but!it!also!has!the!potential!

to!create!costly!problems.!Integration!and!security!are!the!primary!issues!that!a!LOB!might!not!consider.!

Integration!typically!accounts!for!the!lion’s!share!of!cost!and!effort!in!an!IT!project,!and!it!is!much!more!

effective!to!deal!with!security!up!front!rather!than!repair!a!breach.!!IT!departments!and!solution!

providers!can!help!drive!the!discussion!towards!a!new!style!of!procurement!that!allows!for!agility!while!

ensuring!that!IT!concerns!are!surfaced.!

!

Internal&Changes!!

Building!new!processes!for!procurement!is!just!the!first!step!in!IT!becoming!more!of!a!partner!to!the!

lines!of!business!rather!than!simply!a!supplier.!The!ability!to!use!technology!through!the!cloud!can!

streamline!the!way!IT!is!provided,!but!it!can!also!streamline!general!workflows.!A!transformation!of!

internal!operations!is!taking!place!as!companies!are!applying!technology!across!the!entire!organization!

in!completely!new!ways.!

!

This!transformation!does!not!come!from!a!business!simply!applying!the!current!knowledge!and!skills!of!

an!IT!department!or!solution!provider!to!the!task!at!hand.!As!with!procurement,!there!must!be!new!

ways!of!combining!the!IT!function!with!other!functional!areas!in!order!to!produce!a!new!standard!for!

operations.!!

!

Small!businesses!especially!should!take!care!to!examine!their!IT!and!business!operations.!TwentyCthree!

percent!of!small!businesses!using!cloud!solutions!have!not!undertaken!any!operational!changes!at!this!

point,!compared!to!just!3%!of!mediumCsized!businesses!and!9%!of!large!businesses.!Partly,!this!is!due!to!

the!amount!of!time!spent!in!the!cloud!so!far—operational!changes!are!less!common!among!late!

adopters,!where!there!is!a!heavier!concentration!of!small!businesses.!It!is!also!likely!that!many!small!

businesses!have!less!bandwidth!to!review!their!operational!procedures.!With!cloud!computing!being!a!

less!direct!method!for!building!and!using!IT,!it!may!be!advisable!for!smaller!companies!to!begin!building!

more!operational!aptitude!in!order!to!optimize!their!workflow!with!cloud!systems.!

!

!


!!There!is!an!unfortunate!side!to!this!disruption!and!streamlining.!Cloud!computing!has!caused!some!amount!of!trepidation!among!IT!staff!thanks!to!the!possibility!of!outsourcing!compute!resource!(and!the!subsequent!maintenance).!Nearly!one!in!five!companies!reports!reducing!the!number!of!IT!staff,!showing!that!this!may!be!a!logical!step!for!some!businesses.!However,!it!should!be!noted!that!this!action!is!listed!at!the!bottom!of!the!list!of!changes!a!company!may!have!undertaken,!just!as!it!is!near!the!bottom!of!the!list!of!benefits!listed!by!cloud!users.!As!the!job!market!adjusts!to!the!realities!of!cloud,!proactive!IT!workers!can!get!involved!in!a!variety!of!other!actions!their!business!may!be!taking!to!better!utilize!cloud!resources.!This!may!involve!changes!to!policy,!IT!restructuring,!or!use!of!outside!firms.!!Policies&and&Procedures&&

!Changes!to!policy!or!procedure!are!the!most!common!action!taken!by!companies!who!have!moved!into!a!cloud!environment.!Whether!it!is!redefining!steps!that!the!IT!team!must!take!as!they!administer!solutions!or!building!new!processes!for!making!decisions!on!technology,!actions!related!to!policy!and!procedure!are!the!top!three!items!on!the!list!of!changes!driven!by!cloud!computing.!!!Continuing!a!trend!from!previous!years,!security!tops!the!list!of!items!that!companies!are!addressing!as!they!modify!policies.!Through!the!early!days!of!cloud!adoption,!security!was!commonly!cited!as!the!prime!factor!preventing!companies!from!moving!to!cloud!solutions.!With!the!vast!majority!of!companies!having!started!some!form!of!cloud!adoption,!it!is!apparent!that!companies!are!either!accepting!some!

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level!of!risk!or!finding!ways!to!mitigate!cloud!security!concerns—at!least!for!the!applications!they!are!placing!in!the!cloud.!However,!the!discussion!around!security!has!now!shifted!from!addressing!basic!concerns!(which!drives!initial!adoption)!to!focusing!on!finer!details!(which!drives!full!production!use).!!Another!area!frequently!addressed!in!policy!changes!is!the!proper!storage!of!company!data.!CompTIA’s!studies!on!the!Big!Data!trend!show!that!many!companies!feel!that!their!use!of!data!is!less!than!optimal,!in!part!because!they!do!not!have!strong!overarching!data!management!practices.!The!use!of!cloud!systems!for!storage!and!backup!only!complicates!an!already!complex!situation,!and!many!companies!may!benefit!from!a!data!audit!and!education!on!best!practices!in!managing!data!in!a!cloud!environment.!!Security!and!data!management!are!examples!of!policies!that!are!broader!in!nature!and!apply!to!the!entire!company.!Building!these!policies!will!be!a!crossCdepartmental!effort,!but!should!still!involve!significant!input!from!the!IT!team.!The!IT!team!must!learn!how!to!meet!the!needs!of!the!business!with!minimal!delay,!and!they!also!must!properly!understand!and!convey!the!need!to!maintain!a!company’s!risk!posture.!The!best!policies!will!represent!an!agreement!at!all!levels!of!the!company!on!how!cloud!resources!will!be!procured!and!used.!This!will!not!necessarily!mean!that!all!information!flows!through!the!IT!team!for!approval,!but!the!IT!team!should!be!comfortable!with!their!level!of!awareness!and!responsibility!in!the!process.!&Internal&IT&Department&Changes&&Aside!from!policies!and!procedures!that!get!created!or!altered!within!an!IT!department,!other!changes!may!take!place!that!allow!IT!to!be!better!equipped!to!deal!with!a!cloud!environment.!These!changes!may!be!peripheral!to!the!specific!cloud!solutions!being!put!in!place,!but!they!still!have!an!effect!on!the!overall!implementation!cost.!Companies!pursuing!cloud!projects!should!consider!whether!these!actions!would!be!a!worthwhile!part!of!their!cloud!investment!given!their!business!objectives.!!!The!first!area!to!consider!is!the!need!for!new!or!improved!tools!to!control!or!monitor!a!cloud!solution.!In!!some!cases,!this!could!be!a!simple!extension.!For!example,!a!system!administrator!may!use!software!provided!by!his!virtualization!vendor!to!spin!up!new!virtual!machines.!In!a!cloud!situation,!this!will!likely!be!handled!through!a!web!front!end,!and!there!may!be!little!training!required!to!create!new!servers.!There!may!even!be!generic!machine!images!that!have!been!saved!by!other!users!to!eliminate!the!more!tedious!steps!involved!in!getting!a!VM!or!instance!up!and!running.!!Other!tools!will!be!new!additions!to!the!IT!toolbox.!Third!party!software!may!be!needed!that!can!provide!a!comprehensive!view!of!an!architecture,!allowing!administrators!to!see!vital!information!from!both!cloud!systems!and!onCpremise!systems!in!a!single!pane!of!glass.!There!may!be!a!requirement!to!tie!a!company’s!financial!system!to!a!cloud!provider!to!determine!usage!for!billing!purposes.!These!are!examples!of!tools!that!can!be!major!projects!on!their!own,!driving!costs!higher!and!

Types&of&Skills/Roles&Companies&Have&Added&to&IT&Departments&

52%! Cloud!architect!

49%& Skills!to!build!private!clouds!

48%! Departmental!liaisons!

40%! Integration!specialists!

25%! Compliance!specialist!

!


necessitating!a!heavy!time!investment!as!well.!!The!other!primary!area!to!consider!within!the!IT!department!is!the!personnel.!As!mentioned!before,!staff!reduction!may!be!an!aftereffect!of!a!cloud!transition,!but!the!more!likely!scenario!is!that!companies!will!restructure!the!IT!department!in!some!way.!In!fact,!44%!of!companies!that!have!performed!IT!restructuring!have!hired!new!workers!to!bolster!IT!efforts—a!significant!jump!from!last!year.!This!may!be!especially!true!where!cloud!computing!is!used!to!add!new!capabilities!to!a!business,!and!a!sizable!of!amount!of!equipment!remains!onCpremise.!!At!an!organizational!level,!the!movement!towards!transitioning!the!IT!department!from!supplier!to!partner!seems!to!be!making!good!progress.!Over!half!of!the!companies!in!the!survey!(57%)!say!that!the!IT!team!has!been!able!to!move!away!from!maintenance!tasks!and!become!involved!in!more!innovative!work.!An!even!greater!number!(69%)!say!that!the!IT!department!has!become!more!integrated!with!other!lines!of!business!to!understand!how!to!meet!their!needs!through!cloud!solutions.!The!implication!is!that!the!technical!knowledge!held!by!these!workers!is!still!valuable,!and!new!roles!are!being!developed!that!require!new!skills.!!Use&of&Outside&Companies$&One!of!the!biggest!surprises!with!ITCrelated!changes!is!the!low!number!of!companies!that!are!using!outside!firms,!although!that!number!appears!to!be!growing.!Last!year,!only!11%!of!companies!contracted!with!an!outside!firm!for!their!cloud!initiatives.!This!year,!the!number!grew!to!17%,!as!companies!of!all!sizes!increased!their!utilization!of!external!services!and!support.!!While!the!direction!for!third!party!assistance!is!positive,!the!incidence!among!the!smallest!companies!(which!are!least!likely!to!have!internal!expertise)!has!still!not!taken!off!dramatically.!There!are!several!factors!that!could!be!contributing!to!this.!Among!companies!that!did!partner!with!a!solution!provider,!the!top!reason!that!they!eliminated!potential!candidates!was!that!the!costs!were!too!high.!Although!lower!costs!is!still!the!top!driver!for!cloud!solutions,!many!companies!find!that!particular!applications!do!not!actually!have!lower!costs,!mainly!due!to!unexpected!expenses.!As!companies!more!closely!examine!their!transition!cost,!the!additional!overhead!required!to!contract!the!work!might!be!enough!to!deter!them!completely!from!outsourcing.!!Looking!at!channel!firms!that!are!providing!cloud!services,!67%!say!that!they!experienced!a!demand!for!cloud!services!that!outstripped!their!capacity!to!supply!a!solution.!This!could!be!a!statement!of!technical!capability!or!simply!raw!bandwidth.!In!addition,!50%!said!that!they!lost!a!sale!to!a!nonCtraditional!IT!solution!provider,!such!as!a!vendor,!distributor,!or!telecom!carrier.!Both!of!these!numbers!are!significantly!higher!than!last!year’s!results.!!Taken!together,!these!data!points!suggest!that!there!are!some!gaps—either!real!or!perceived—in!the!ability!of!solution!providers!to!adequately!support!cloud!services.!For!SMBs,!the!hurdles!of!additional!overhead!cost!and!struggles!with!solution!provider!capacity!may!be!too!large!to!overcome.!As!a!result,!these!companies!may!work!directly!with!cloud!providers!in!many!instances.!Even!though!they!may!receive!services!beyond!the!actual!product!being!procured,!this!is!likely!not!considered!“contracting”!by!the!end!user!since!it!all!comes!directly!from!the!provider.!!Solution!providers!should!be!aware!that!these!perceptions!may!exist!and!should!take!action!to!address!them.!For!the!issue!of!cost,!solution!providers!will!need!to!be!prepared!to!fully!explain!the!value!of!a!

!


cloud!solution!and!the!added!benefit!that!the!provider!is!able!to!deliver.!The!issue!of!capacity!may!be!more!challenging.!If!a!customer!desires!a!solution!beyond!the!technical!capability!of!a!provider!or!if!the!provider!is!fully!booked,!hiring!or!training!can!solve!the!problem!but!are!not!immediate!fixes.!One!suggestion!for!solution!providers!is!to!look!for!partners!with!specialized!expertise,!then!act!as!a!focal!point!with!the!customer!to!provide!a!complete!solution.!!

Business Model Analysis

SECTION 4:

!


Key&Points&!• Along!with!greater!adoption!of!cloud!within!the!channel!has!come!a!more!positive!outlook.!Nearly!

two!thirds!(63%)!of!channel!firms!described!the!impact!cloud!computing!has!had!on!the!channel!in!the!past!five!years!as!“extremely!positive,”!while!another!30%!deemed!it!“positive.”!Channel!firms!also!have!more!confidence!in!their!abilities!with!cloud!and!the!role!it!plays!in!their!overall!portfolio.!FiftyCseven!percent!of!respondents!described!their!cloud!business!as!mature!and!strategic,!compared!with!46%!with!similar!sentiment!in!2013.!

!• !Among!the!cloudCbased!business!model!frameworks!outlined!by!CompTIA,!channel!firms!reported!

significant!increases!in!the!strategic!importance!of!each!of!those!they!operate!in!compared!with!a!year!ago.!There!was!some!retrenchment,!however,!in!the!percentage!of!firms!that!are!engaged!in!two!of!the!four!frameworks!from!2013.!The!Enable/Integrate!and!Manage/Support!models!both!saw!a!decline!in!participation.!

!• Many!of!the!activities!and!services!in!the!Enable/Integrate!and!Manage/Support!cloud!models!

require!a!complex!set!of!skills.!Some!of!the!channel!firms!that!initially!rushed!into!this!market!may!have!found!the!work!either!exceeded!their!capacity!to!address!while!continuing!to!balance!their!legacy!business!or!that!the!necessary!resources!to!train!or!retrain!staff!on!these!services!was!too!costly.!One!of!the!key!challenges!of!doing!cloudCbased!integration!is!having!a!working!knowledge!of!a!morass!of!WebCbased!APIs,!a!development!skill!that!is!not!in!the!wheelhouse!of!the!majority!of!the!channel.!

!• Commitment!to!the!Build!business!model!for!cloud!appears!to!be!the!strongest.!More!than!half!of!

channel!firms!today!(52%)!participate!in!this!model,!with!64%!of!them!describing!this!part!of!their!cloud!business!as!strategic!and!core,!compared!with!46%!who!did!so!in!2013.!

!!

!&&&&&&&&&&&&&&

!


Business&Transformation&within&the&Channel:&Path&to&the&Cloud&!Just!as!end!user!organizations!are!moving!through!various!stages!of!adoption!with!respect!to!cloud!computing,!the!IT!channel!has!been!charting!its!own!course!over!the!last!five!years.!Generally!speaking,!channel!firm!thinking!has!evolved!from!“cloud!is!something!to!fear”!to!“cloud!is!a!catalyst!for!business!transformation!and!new!opportunities.”!In!fact,!4!in!10!respondents!in!CompTIA’s!recent!4th$Annual$State$of$the$Channel!study!credited!cloud!computing!for!pushing!them!in!new!business!directions,!the!top!response!amid!a!host!of!other!business!transformation!drivers!that!in!their!own!right!are!cloudCrelated.!!The!most!pressing!question!channel!firms!face!related!to!cloud!adoption!concerns!business!model!choice!–!or!choices!as!the!case!may!be.!In!this!section!of!CompTIA’s!5th$Annual$Trends$in$Cloud$Computing!report,!we!will!discuss!the!various!models!that!have!gained!traction!within!the!channel!today!and!provide!details!into!how!those!models!are!structured!and!performing.!

!First!off,!however,!let’s!acknowledge!that!the!channel!has!come!a!long!way!with!cloud!from!where!it!sat!five!years!ago.!In!2010,!just!1!in!10!channel!firms!reported!any!involvement!with!selling!or!using!cloud!solutions.!Today,!some!level!of!adoption!is!nearCuniversal,!with!heavy!involvement!quite!prevalent!in!some!circles.!The!number!of!companies!identifying!as!“born!in!the!cloud”!has!jumped!considerably,!though!it’s!important!to!note!that!this!might!be!more!a!function!of!latching!onto!catchy!marketing!lingo!than!it!is!that!all!of!these!companies!are!purely!cloudCbased!and!not!offering!any!traditional!channel!business!lines!such!as!product!resales!or!project!work.!!Along!with!greater!adoption!has!come!a!more!positive!outlook.!Nearly!two!thirds!(63%)!of!channel!firms!described!the!impact!cloud!computing!has!had!on!the!channel!in!the!past!five!years!as!“extremely!positive,”!while!another!30%!deemed!it!“positive.”!Smaller!channel!firms!gave!higher!marks!to!cloud’s!impact!than!medium!and!largeCsized!companies,!74%!versus!52%!and!48%!respectively.!This!is!perhaps!reflective!of!the!fact!that!they!tend!to!sell!to!end!user!organizations!that!are!also!quite!small!in!nature.!For!SMBs,!many!without!their!own!IT!department,!cloudCbased!offerings!open!doors!to!technology!that!might!not!have!been!affordable!or!easy!for!them!to!scale!and!manage!in!traditional!formats,!while!also!providing!access!to!less!expensive!sources!of!basic!IT!needs!such!as!storage!capacity.!!Revenue!classification!is!one!caveat!to!note!amidst!the!channel’s!cloud!enthusiasm.!What!constitutes!cloudCbased!revenue!vs.!onCpremises!or!nonCcloud!revenue!can!be!blurry!and!defined!differently!depending!on!the!channel!firm!in!question.!Consider!a!reseller!that!bundles!a!cloudCbased!BC/DR!solution!with!a!large!onCpremises!hardware!sale.!That!reseller!might!tally!that!deal!as!two!different!sources!of!revenue!or!conversely!count!the!entire!deal!as!a!cloudCrelated.!The!latter!accounting!would!

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inflate!that!reseller’s!cloudCclassified!revenue!quite!significantly.!Down!the!road,!when!some!customers!decide!not!to!upgrade!onCpremises!solutions!to!the!same!degree!they!do!today,!there!could!be!a!negative!effect!on!channel!revenue!reliant!on!cloud!solutions!only,!absent!other!systems,!for!example.!!Channel!firms!also!have!more!confidence!in!their!abilities!with!cloud!and!the!role!it!plays!in!their!overall!portfolio.!FiftyCseven!percent!of!respondents!described!their!cloud!business!as!mature!and!strategic,!compared!with!46%!with!similar!sentiment!in!2013.!Again,!smaller!channel!firms!assessed!themselves!as!mature!with!cloud!with!greater!frequency!than!either!mediumC!or!large!companies.!This!could!come!down!to!what!various!companies!are!doing!with!cloud.!For!example,!a!small!channel!firm!reselling!cloudCbased!email!for!its!customers!–!a!relatively!lowChangingCfruit!solution!–!would!rightly!characterize!that!business!as!quite!mature.!On!the!other!hand,!a!larger!company!attempting!to!put!together!more!complex!cloud!offerings!such!as!those!that!tie!into!business!analytics!or!involve!custom!development!for!mobile!apps!may!still!have!a!ways!to!go!to!consider!their!functions!all!grown!up.!!Optimism!about!cloud!is!even!evident!among!those!channel!firms!reporting!a!low!degree!of!maturity!with!the!model!today.!Roughly!half!(46%)!said!they!were!confident!they!were!on!the!right!path!with!their!cloud!efforts,!an!increase!from!2013.!Another!46%!expressed!at!least!some!degree!of!confidence!in!where!they!are!headed.!!!

!!

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!


It’s!not!all!roses,!however.!On!a!few!fronts,!namely!within!two!of!the!more!complex!cloud!business!models,!the!findings!show!some!retrenchment.!This!trend!will!be!discussed!in!more!detail!in!the!business!model!subCsections!below,!but!the!pullback!seen!in!cloud!models!dealing!with!integration!and!enablement!as!well!as!management!and!support!could!be!attributed!to!degree!of!difficulty!encountered.!In!particular,!smaller!channel!firms!reported!these!activities!at!much!lower!rates!in!2014!than!in!2013,!which!could!indicate!that!their!initial!enthusiasm!may!have!been!tempered!as!they!encountered!either!resource!issues,!skills!gaps!or!other!obstacles!that!caused!them!to!rethink!their!level!of!commitment.!!No!matter!the!pace!of!change,!all!of!these!firms!have!had!to!make!strategic!and!tactical!decisions!about!which!cloud!business!model!or!models!to!pursue.!They!base!these!directional!choices!on!a!number!of!factors,!including!the!company’s!current!operating!model,!specific!capabilities!and!staffing,!as!well!as!focus!areas!in!the!market.!It’s!not!an!easy!exercise.!In!fact,!it!appears!to!be!getting!more!difficult.!Nearly!6!in!10!channel!firms!(59%)!cited!the!need!to!determine!the!correct!business!model!as!a!challenge!to!launching!a!cloud!business,!up!from!45%!in!2013.!That!suggests!a!degree!of!trial!and!error!going!on,!with!channel!firms!still!casting!about!for!the!right!fit!for!their!company.!

The!questions!are!myriad:!!

• Resell!a!vendor’s!cloud!solutions?!• Aggregate!and!broker!cloud!services!from!a!variety!of!different!sources?!• Integrate!and!customize!cloudCbased!apps!and!services,!or!simply!sell!the!infrastructure!to!an!

end!user!and!provide!consulting?!• Act!as!a!managed!services!provider!for!cloud!solutions?!

!


!!

To!capture!information!about!their!cloud!business,!the!CompTIA!study!presented!respondents!with!four!broad!types!of!cloud!operating!models!and!asked!which,!if!any,!they!have!engaged!in!during!the!past!year.!The!above!diagram!depicts!the!four!business!model!areas,!along!with!the!subcategories!of!work!activity!that!are!associated!with!them.!The!longer!bars,!such!as!IaaS/PaaS/SaaS!and!Consulting/Advising/IT!Solutions!represent!activities!that!can!accompany!any!of!the!four!main!business!models.!It!should!be!noted!that!these!four!models!are!by!no!means!reflective!of!every!possible!type!of!channel!model!applicable!to!cloud;!however!they!do!represent!a!fairly!complete!picture!of!the!type!of!cloud!work!being!done!across!today’s!channel.!!

Many!solution!providers!are!involved!with!more!than!one!of!the!models,!including!a!population!that!reports!activity!in!all!four!buckets.!Across!the!board,!channel!firms!reported!significant!increases!in!the!strategic!importance!of!each!of!the!cloud!business!models!they!operate!in!compared!with!a!year!ago.!Below,!each!business!model!is!broken!out!in!detail.!!!!

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!&Cloud&Model&Element&1:&Build!!A!strong!starting!point!for!the!cloud!for!many!firms!is!the!category!of!Build,!which!is!defined!in!the!study!as:!!!Typically$this$involves$firms$procuring$vendor;based$hardware$and$software$products$to$construct$private$and/or$hybrid$clouds$for$customers.$They$may$also$offer$consulting$guidance$on$the$best$IT$architecture,$configuration$and$product$choices$for$the$project.$$&The!Build!category!saw!a!slight!increase!in!participation!in!2014,!with!52%!of!channel!firms!doing!work!in!this!area!compared!with!48%!last!year.!!!The!bump!up!is!a!bit!surprising.!The!Build!category!represents!a!bit!of!a!cloud!launching!pad!for!solution!providers.!For!example,!of!those!firms!that!are!also!operating!one!of!the!other!three!cloud!business!models,!7!in!10!started!with!a!with!Build!practice!before!adding!the!others.!This!makes!sense!given!that!this!model!maps!to!traditional!nonCcloudCrelated!strengths!in!infrastructure!products!sales!and!implementation!work.!It’s!not!a!leap!out!of!the!comfort!zone!for!most!channel!players.!!

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!


But!with!five!years!and!counting!under!our!belts!with!cloud,!it!would!seem!to!make!sense!that!we’d!hit!a!ceiling!on!new!Build!entrants.!Clearly!that’s!not!the!case.!One!explanation!lies!in!the!actions!going!on!at!the!customer!level.!As!outlined!in!Section!2!of!this!report,!end!user!cloud!migration!patterns!have!accelerated,!which!has!included!a!percentage!of!companies!that!are!pulling!their!solutions!back!from!an!initial!stay!in!the!public!cloud!to!a!private!cloud!installation!within!their!own!four!walls.!Savvy!channel!firms!keeping!a!tab!on!these!types!of!customer!trends!may!have!seen!an!increased!revenue!opportunity!in!this!model!this!past!year.!!The!commitment!to!the!Build!model!is!evident!in!the!fact!that!64%!of!respondents!described!this!part!of!their!cloud!business!as!strategic!and!core,!compared!with!46%!who!did!so!in!2013.!This!jump!suggests!that!operations!in!this!category!have!reached!a!maturity!level!that!is!delivering!revenue!results!beyond!the!niceCtoChave!variety.!Labeling!their!Build!activities!in!cloud!as!strategic!skewed!slightly!higher!for!small!channel!firms,!while!a!full!8!in!10!respondents!that!operate!mature!cloud!businesses!identified!this!piece!of!their!business!as!strategic!and!core.!!In!terms!of!focus!areas!within!the!Build!framework,!the!findings!show!a!sizeable!increase!in!those!that!are!mainly!procuring!hardware!and!software!tools,!then!reselling!to!customers!to!build!private!clouds.!SixtyCfour!percent!of!channel!firms!in!this!category!are!doing!this!activity,!compared!with!31%!last!year.!Again!this!may!point!to!end!users!demanding!more!private!cloud!implementations!after!experimenting!with!their!workloads!and!applications!in!the!public!cloud.!Among!small!channel!firms,!86%!are!procuring!and!reselling!private!cloud!infrastructure!to!clients!today.!Many!of!today’s!vendors,!including!VMware!and!HewlettCPackard,!have!taken!to!market!“cloud!out!of!a!box”!type!solutions!that!enable!customers!to!construct!private!clouds!in!a!relatively!turnkey!manner.!It’s!likely!that!the!small!channel!firms!making!up!that!86%!are!reselling!solutions!like!this,!along!with!typical!hardware.!!Far!fewer!(13%)!report!that!their!Build!business!is!primarily!about!leveraging!an!existing!customer’s!onCpremise!hardware!and!layering!software!and!management!tools!to!build!a!private!or!hybrid!cloud!solution.!&!

Cloud&Model&Element&2:&Provide/Provision&!This!category!saw!a!slight!drop!in!participation!in!2014,!from!49%!of!channel!firms!doing!cloud!in!2013!to!42%!in!2014.!And!yet,!those!involved!in!Provide/Provision!consider!this!activity!much!more!strategic!than!last!year.!Two!thirds!pegged!this!model!as!core!to!their!business,!up!from!49%!in!2013.!Clearly,!for!those!making!the!commitment!to!particular!cloud!business!models,!they!are!experiencing!some!positive!traction.!!!A!quick!definition:!!Typically$these$firms$are$reselling$and$provisioning$IaaS$offerings$such$as$storage$and$compute$capacity$from$Amazon$Web$Services$or$SaaS$offerings$such$as$Google$Apps.$They$are$also$evaluating$and$aggregating$various$cloud$services$for$customers.$$Within!this!model,!there!are!several!subcategories!of!activities!that!channel!firms!pursue!today.!Consistent!with!2013!findings,!6!in!10!channel!firms!doing!cloud!report!white!labeling!a!vendor’s!cloud!offerings,!leading!with!their!own!brand!on!what!is!typically!a!SaaS!deal.!As!channel!firms!look!to!elevate!their!own!branding!and!improve!marketing!and!sales!expertise!as!they!move!away!into!services!models,!

!


white!labeling!makes!sense.!See!CompTIA’s!4th$Annual$State$of$the$Channel!report!for!a!deep!dive!on!current!efforts!within!the!channel!to!drive!sales!and!marketing!change!within!their!organizations.!!!Also!within!Provide/Provision,!a!significant!amount!of!activity!occurs!in!the!reselling!of!vendor!cloudCbased!solutions.!Think!about!a!business!built!around!selling!Microsoft!Office!365!or!Google!Apps.!Half!of!channel!firms!in!this!category!do!so!today,!including!two!thirds!of!the!largest!channel!entities.!!Most!surprisingly,!67%!of!channel!firms!said!they!were!operating!their!own!cloud!and!selling!services!direct!to!customers!in!this!fashion.!This!high!percentage!seems!counterintuitive!to!what!appears!to!be!happening!in!the!market!place!today,!where!channel!firms!are!eschewing!the!building!of!their!own!NOCs!in!favor!of!using!the!much!lowerCpriced!services!of!the!megaCproviders!such!as!Amazon!Web!Services.!It’s!possible!that!this!is!exactly!what!respondents!are!talking!about!here.!They!resell!services!that!reside!in!the!public!cloud!today!directly!to!their!customers.!It!is!also!possible!that!channel!firms!offering!managed!services!today!operate!in!this!fashion,!using!a!PSA!tool!to!run!their!customer’s!systems,!storage!and!other!operations,!but!tying!the!PSA!tool!into!Amazon!or!another!large!public!cloud!provider!to!serve!as!its!backend.!Technically,!the!backend!isn’t!really!the!MSP’s!own,!but!they!may!count!it!as!part!of!their!cloud!services.!

!Which!cloud!services!are!they!selling?!Among!the!42%!of!channel!firms!involved!in!Provide/Provision!model!for!cloud,!the!usual!suspects!of!storage,!email,!business!productivity!apps!and!virtual!desktop!are!among!the!most!popular!cloud!services!moving!through!the!channel!today.!!Between!half!and!twoCthirds!of!channel!firms!have!these!services!in!their!cloud!portfolio,!although!the!number!offering!email!and!storage!solutions!declined!slightly.!This!could!be!attributed!to!the!growing!number!of!end!users!that!simply!access!such!services!directly!from!the!likes!of!Amazon!or!Google.!!The!No.!1!solution!reportedly!being!sold!is!cloudCbased!business!intelligence!and!data!analytics,!which!could!indicate!a!moving!upstream!to!more!sophisticated!solutions!in!the!cloud.!With!cloud!versions!of!analytics!tools!now!available,!solution!providers!have!an!opportunity!to!sell!predominantly!SMB!customers!solutions!that!may!have!been!beyond!financial!reach!in!the!onCpremises!form.!Nonetheless!it!is!a!surprising!category!to!land!at!the!top!of!this!list!of!cloud!solutions!being!sold!by!the!channel.!One!further!explanation!could!be!that!channel!firms!are!including!revenue!generated!by!building!managed!services!dashboards!or!using!Web!analytics!such!as!Google!Analytics!in!some!of!the!work!that!they!provide!to!customers!and!do!internally.!!The!Provide/Provision!model!has!perhaps!the!lowest!barrier!to!entry!of!all!four!of!the!cloud!business!frameworks.!It’s!not!a!big!leap!to!resell!a!vendor’s!SaaS!applications!if!you!are!already!reselling!that!vendor’s!other!products!and!services.!However,!the!margins!on!vendor!SaaS!sales!tend!to!be!on!the!lower!side,!which!requires!channel!firms!to!find!ways!to!add!value!to!increase!profitability.!!!

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!


Cloud&Model&Element&3:&Enable/Integrate&!The!Enable/Integrate!business!framework!for!cloud!took!a!hit!in!2014!in!terms!of!the!number!of!channel!companies!with!offerings!in!this!category.!And!yet!for!those!firms!in!this!space,!the!commitment!runs!deep!and!the!solutions!they!are!providing!–!for!example,!mobile!application!development!CC!are!the!kind!of!robust,!highCmargin!offerings!that!boost!profitability!significantly.!!Consider!the!following!definition!for!the!model:!!Typically$they$are$providing$integration$and$implementation$services$that$may$include$tying$a$customer’s$on;premise$IT$solutions$to$its$cloud;based$solutions$or$customizing$cloud;based$solutions$to$fit$a$particular$business$need$or$vertical.$!In!2013,!half!of!channel!firms!with!cloud!in!their!portfolios!offered!services!that!fall!within!the!Enable/Integrate!framework.!These!run!the!gamut!from!deployment!of!cloud!solutions!and!integration!with!on!premises!systems!to!customization!and!consulting.!The!percentage!working!in!this!model!dropped!to!39%!this!past!year,!a!notable!decline.!Additionally,!a!quarter!of!respondents!in!2013!said!this!business!model!category!had!greatest!growth!potential!among!the!four!frameworks!for!cloud,!just!behind!Provide/Provision!and!Build.!Just!9%!did!this!past!year.!!Why!the!retrenchment?!As!mentioned!above,!this!might!be!a!case!of!biting!off!more!than!you!can!chew.!Many!of!the!activities!and!services!in!the!Enable/Integrate!stable!require!a!complex!set!of!skills.!Some!of!the!channel!firms!that!initially!rushed!into!this!market!may!have!found!the!work!either!exceeded!their!capacity!to!address!while!continuing!to!balance!their!legacy!business!or!that!the!necessary!resources!to!train!or!retrain!staff!on!these!services!was!too!costly.!One!of!the!key!challenges!of!doing!cloudCbased!integration!is!having!a!working!knowledge!of!a!morass!of!WebCbased!APIs,!a!development!skill!that!is!not!in!the!wheelhouse!of!the!majority!of!the!channel.!!Smallest!channel!firms!were!least!likely!to!participate!in!this!business!framework.!Just!23%!of!them!do!so!currently,!compared!with!just!more!than!half!of!medium!and!large!counterparts.!The!fact!that!90Cplus!percent!of!channel!firms!fall!into!the!smallCsize!category!might!also!help!to!explain!the!low!participation!rates!in!this!category.!!!For!those!that!are!involved!with!Enable/Integrate,!the!work!can!be!lucrative.!The!business!model!encapsulates!a!number!of!activities.!Roughly!twoCthirds!of!companies!involved!in!Enable/Integrate!are!currently!providing!the!following:!deployment!of!cloud!solutions,!integration!of!onCpremise!tools!and!infrastructure!to!cloud!solutions!and!customization,!often!to!meet!vertical!industry!needs.!Another!third!are!engaged!in!cloudCbased!application!development,!most!likely!building!SaaS!apps!or!extensions!to!apps!that!tie!cloud!in!with!an!end!customer’s!current!environment.!!Many!of!the!PaaS!platforms!in!the!cloud!simplify!this!type!of!work.!The!level!of!involvement!in!these!areas!remains!on!a!par!with!the!percentages!from!last!year’s!version!of!the!study.!!More!channel!firms!this!year!have!gone!down!the!road!of!mobile!application!development!to!synch!and!interact!with!cloud!solutions.!SixtyCfour!percent!of!respondents!offer!these!services!currently,!compared!with!54%!in!2013.!As!mobile!continues!to!grow!in!stature!across!all!types!of!applications,!expect!that!category!to!accelerate.!Another!growth!area!that!illustrates!the!relative!maturity!of!cloud!as!a!solution!today!focuses!on!migration!services.!Channel!firms!in!this!realm!are!either!moving!a!customer!from!one!

!


public!cloud!provider!to!another!–!often!because!of!dissatisfaction!with!Provider!#1!CC!or!reorienting!apps!and!infrastructure!back!on!premises!for!security!or!other!reasons.!&Cloud&Model&Element&4:&Manage/Support&!Ongoing!management!and!support!for!operational!cloud!environments!should,!in!theory,!present!a!major!opportunity!area!for!channel!firms!that!serve!on!the!front!line!to!their!customers.!And!yet,!similar!to!the!downward!trajectory!of!the!Enable/Integrate!category,!the!Manage/Support!model!saw!a!sharp!decline!in!the!number!of!channel!companies!currently!providing!those!services.!!A!quick!definition:!!Typically$they$are$delivering$the$ongoing$management$and$support$of$cloud;based$services$as$project$work$or$in$a$contractual,$recurring$revenue$model.$They$are$also$adding,$scaling$or$troubleshooting$cloud$services$as$needed.$!In!2013,!61%!of!respondents!involved!in!cloud!reported!activities!in!this!business!model.!That!dropped!to!47%!this!past!year,!though!the!number!that!said!they!plan!to!offer!these!services!in!the!coming!year!came!in!at!a!healthy!46%.!

!One!explanation!for!the!retrenchment!from!last!year!could!also!be!that!some!channel!firms!rushed!in!too!quickly,!only!to!find!they!did!not!understand!the!underlying!business!model,!which!in!some!cases!requires!a!shift!from!transactional!to!recurring!revenue.!With!that!comes!a!host!of!changes!that!need!to!be!made!inside!an!organization,!including!a!retraining!of!sales!reps!used!to!selling!products!to!now!push!servicesCrelated!contractual!deals.!It’s!not!a!low!bar!for!many!organizations.!Implications!for!marketing!and!branding!also!exist!when!moving!to!a!services!provider!type!of!business.!See!CompTIA’s!4th$Annual$State$of$the$Channel!report!for!an!inCdepth!look!at!the!impact!moving!to!recurring!revenue!models!has!on!a!company,!including!the!significant!shift!is!prompts!in!sales!and!marketing!structure.!!!Among!companies!that!pulled!back!from!the!Manage/Support!framework!this!year,!small!firms!did!so!most!precipitously.!Nearly!6!in!10!participated!in!this!bucket!in!2013.!This!year!that!was!down!to!35%.!Medium!sized!firms!also!saw!a!drop!from!71%!to!59%!year!on!year.!Large!firms!held!steady!in!their!year!on!year!adoption.!!!For!companies!involved!in!Manage/Support,!the!commitment!is!high,!similar!to!what!is!being!seen!in!the!Enable/Integrate!arena.!Activities!in!this!category!confer!companies!in!many!cases!with!a!contractual!relationship!to!the!customer,!like!managed!services,!and!the!muchCdesired!recurring!revenue!stream.!

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This!can!help!eliminate!the!highs!and!lows!associated!with!product!sales!and/project!work!and!ensure!a!longerCterm!customer!relationship.!Two!thirds!of!players!here!consider!this!work!strategic!and!core!to!their!business,!including!upwards!of!80%!of!companies!that!assessed!their!cloud!activities!as!mature.!$A!variety!of!services!fall!into!this!category,!and!channel!activity!increased!in!all!areas!despite!the!pool!of!overall!participants!diminishing.!!!

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MINO1MINH1

Channel Dynamics

SECTION 5:

!


Key&Points&!• Compared!with!nonCcloud!business!offerings!by!channel!firms,!cloud!solutions!and!services!are!

growing!faster!in!terms!of!revenue!and!delivering!higher!profit!margins.!And!while!that!was!also!the!case!in!2013!based!on!the!selfCassessment!of!study!respondents,!the!number!reporting!such!positives!for!cloud!activities!jumped!this!year.!This!year,!two!thirds!of!respondents!reported!higher!profit!margins!on!cloud!business!than!nonCcloud,!up!from!half!last!year.!The!revenue!growth!rate!for!cloud!vs.!nonCcloud!solutions!also!shot!up!eight!percentage!points!from!2013.!

!• Two!thirds!of!channel!firms!maintained!the!same!mix!of!business!models!for!their!cloud!practices!

among!the!four!outlined!in!Section!4!of!this!report:!Build,!Provide/Provision,!Enable/Integrate!and!Manage/Support.!But!another!third,!including!half!of!medium!and!largeCsized!companies,!respectively,!took!on!additional!cloud!business!model!frameworks,!suggesting!they!had!reaped!positive!results!from!their!existing!cloud!streams!and!felt!confident!about!branching!out!into!more.!

!• Four!in!10!respondents!predicted!cloud!revenue!to!grow!significantly!(15%!or!more)!in!the!coming!

year.!That!compares!with!26%!that!responded!similarly!in!2013.!This!sunny!outlook!was!shared!consistently!across!all!channel!firm!sizes,!and!regardless!of!the!number!of!business!model!frameworks!they!participate!in!for!cloud.!

!• Challenges!remain!in!adopting!cloud.!The!list!remains!largely!unchanged!from!years!past:!

determining!the!correct!business!model,!balancing!cloud!vs.!nonCcloud!businesses,!initial!costs,!sales!restructuring!and!the!like.!But!the!number!of!respondents!distinguishing!these!challenges!as!“very!significant”!rose!by!an!average!of!about!10!percentage!points!across!all!items.!It!seems!more!time!with!cloud!has!revealed!its!complications.!!!

!&&&&&&&&&&&&&&&&&

!


Taking&Stock&of&the&Cloud;based&Business&&Regardless!of!the!business!model!or!models!that!channel!firms!are!embracing!around!cloud,!the!bigger!question!over!the!last!five!years!has!concerned!monetization.!In!other!words,!how!to!turn!cloud!into!a!sizeable!revenue!stream,!generate!profits!and!satisfy!customers.!This!section!of!CompTIA’s!5th$Annual$Trends$in$Cloud$Computing$report!takes!stock!of!the!current!revenue!and!profit!picture!for!the!channel’s!cloud!activities,!as!well!as!examines!the!challenges!that!firms!have!faced!as!they!have!added!a!cloud!practice.!Additionally,!we!examine!customer!demand!and!habits!with!respect!to!cloud,!two!factors!that!obviously!influence!the!channel’s!actions!and!potential!success!in!this!area.!!Unlike!the!nascent!days!of!cloud!when!simple!definitions!dominated!the!debate!and!discussion,!enough!time!and!experience!today!have!afforded!channel!firms!a!degree!of!hindsight!and!set!of!metrics!to!begin!understanding!the!true!value!of!their!cloud!activities,!whether!minor!or!major!in!scope.!Channel!firms!largely!report!a!positive!trajectory!with!respect!to!their!cloudCbased!lines!of!business,!which!unlike!previous!years!now!comprises!a!larger!–!and!growing!CC!piece!of!their!overall!revenue!picture.!!!

!!In!fact,!when!compared!with!nonCcloud!business!offerings!by!channel!firms,!cloud!solutions!and!services!are!growing!faster!in!terms!of!revenue!and!delivering!higher!profit!margins.!And!while!that!was!also!the!case!in!2013!based!on!the!selfCassessment!of!study!respondents,!the!number!reporting!such!positives!for!cloud!activities!jumped!this!year.!In!the!case!of!profit!margins!for!cloud!visCaCvis!nonCcloud!products!

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and!services,!the!leap!was!quite!significant.!Roughly!half!of!2013!respondents!said!cloud!reaped!higher!margins,!which!grew!to!twoCthirds!offering!that!assessment!this!year.!Margin!reporting!can!be!fuzzy,!which!should!be!noted.!Channel!firms!are!bundling!in!a!number!of!nonCcloud!activities!and!solutions!with!their!cloud!sales!–!nonCcloud!integration!work,!for!example!–!that!might!significantly!boost!the!profits!on!a!SaaS!deal!that!in!and!of!itself!is!not!high!margin.!Likewise,!perception!might!be!at!play!here,!as!channel!firms!note!the!commoditization!and!declining!margins!on!hardware!and!assume!higher!profits!coming!from!their!cloud!sales.!!The!revenue!growth!rate!for!cloud!vs.!nonCcloud!solutions!also!shot!up!eight!percentage!points!from!2013.!Among!channel!firms!that!identify!their!cloudCbased!business!as!mature!and!strategic!(See!Section!4!for!additional!detail!on!cloud!maturity!rates),!the!numbers!run!even!higher.!Approximately!three!quarters!of!this!population!report!that!both!revenue!growth!rate!and!profit!margins!on!cloud!wares!are!higher!than!nonCcloud!products!and!services.!Makes!sense!as!this!category!of!firm!is!often!invested!in!more!than!one!of!the!cloud!business!model!frameworks!outlined!in!Section!4!and!has!committed!heavily!to!cloud!as!a!foundation.!!!The!channel!upswing!mirrors!what!many!vendors!they!work!with!are!seeing!in!their!own!cloud!efforts.!Microsoft,!for!example,!released!quarterly!results!in!October!that!showed!its!commercial!cloud!revenue!from!business!customers!(not!consumers),!grew!by!$662!million,!or!128%.!CEO!Satya!Nadella!says!the!company's!cloud!computing!business!is!moving!in!the!direction!to!reach!$4.4!billion!in!revenue!this!year,!and!while!still!a!fraction!of!the!sales!generated!from!its!conventional!softwareClicensed!products!it!is!expanding!at!a!faster!pace.!And!that’s!good!news!for!the!channel,!considering!that!a!healthy!portion!of!Microsoft’s!cloud!revenue!results!from!its!partners!selling!cloudCbased!Office!365. One!caveat.!It!must!be!mentioned!that!selfCreporting!on!financials!–!profitability,!revenue!growth,!etc.!–!is!not!a!100%!true!barometer,!as!respondents!can!at!times!tend!to!inflate!results!lack!complete!transparency!into!the!hard!numbers.!That!said,!the!trajectory!in!the!study!findings!is!undeniably!moving!in!an!upward!direction!for!cloud!when!compared!directly!to!conventional!lines!of!channel!business.!And!unless!a!company!is!a!bona!fide!“born!in!the!cloud’!entity,!most!will!remain!hybrid!in!nature,!operating!with!a!mix!of!revenue!streams!from!cloud!and!nonCcloud!sources.!!The!revenue!mix!for!channel!firms!is!indeed!quite!a!hybrid!of!varying!sources!from!hardware!sales!and!managed!services!to!cloud!sales!and!consulting.!Cloud!revenue!has!established!a!larger!presence!than!in!past!years!within!the!channel!revenueCgenerating!activities.!This!includes!not!only!the!cloud!solutions!themselves,!but!also!any!consulting!work!and!infrastructure!–!e.g.!hardware!and!software!to!build!a!private!cloud!–!that!goes!along!as!part!of!the!sale.!!Two!thirds!of!channel!firms!maintained!the!same!mix!of!business!models!for!their!cloud!practices!among!the!four!outlined!in!Section!4!of!this!report:!Build,!Provide/Provision,!

Channel&Revenue&Split&Last&12&Months&&25%! NonCcloud!software!sales!!21%! CloudCbased!sales,!including!

infrastructure!and!consulting!20%! NonCcloud!hardware!sales!13%! NonCcloud!consulting!11%! Managed!services!10%! NonCcloud!break/fix!9%! NonCcloud!integration!7%! NonCcloud!telecom!services!

!

!


Enable/Integrate!and!Manage/Support.!But!another!third,!including!half!of!medium!and!largeCsized!companies,!respectively,!took!on!additional!cloud!business!model!frameworks,!suggesting!they!had!reaped!positive!results!from!their!existing!cloud!streams!and!felt!confident!about!branching!out!into!more.!!Expectations!for!continued!revenue!growth!expansion!also!soared.!Four!in!10!respondents!predicted!cloud!revenue!to!grow!significantly!(15%!or!more)!in!the!coming!year.!That!compares!with!26%!that!responded!similarly!in!2013.!This!sunny!outlook!was!shared!consistently!across!all!channel!firm!sizes,!and!regardless!of!the!number!of!business!model!frameworks!they!participate!in!for!cloud.!!Operationally!speaking,!another!indicator!that!the!channel!is!taking!the!metrics!around!cloud!seriously!is!the!attention!they!are!paying!to!the!manner!in!which!cloudCbased!revenue!is!distinguished!from!nonCcloud!revenue.!This!exercise!allows!for!far!more!accurate!tracking!of!where!their!sales!are!coming!from.!!!

!!Of!particular!note!is!the!jump!in!firms!that!have!implemented!commercial!PSA!(Professional!Services!Automation)!tools!to!track!their!various!revenue!sources.!PSA!software!is!not!inexpensive.!In!fact,!in!a!CompTIA!Trends$in$Managed$Services$Operations!study!from!2012,!just!46%!of!MSPs!were!using!commercial!PSA!software!to!run!their!operations!–!and!that!population!has!been!the!primary!target!for!these!platforms.!So!the!fact!that!today’s!firms!are!shelling!out!the!dollars!and!deploying!these!systems!as!a!way!to!track!their!cloud!revenue!streams!is!telling!and!speaks!volumes!about!their!commitment.!!

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!The!incidence!rate!of!the!various!actions!taken!on!the!revenueCtracking!front,!including!altering!accounting!codes!and!creating!separate!sales!teams!assigned!to!cloud!and!nonCcloud!business,!is!consistent!across!all!sizes!of!channel!companies,!though!mediumCsized!businesses!did!show!a!higher!propensity!for!following!specific!vendor!specifications!for!tallying!cloud!sales.!!

&Challenges&and&Transition&Logistics&&While!five!years!working!with!cloud!has!clearly!injected!more!confidence!and!better!results!into!the!channel,!it’s!also!allowed!enough!time!for!problems!and!challenges!to!bubble!up!to!the!surface,!and!in!some!cases!cause!channel!firms!to!retrench!a!bit!in!their!activity!level!(See!Section!4!for!more!details).!!First,!let’s!review!the!transition!path!that!firms!are!taking!to!add!cloud!to!their!portfolios.!The!findings!reveal!a!change!that!suggests!a!bit!more!caution!for!newcomers.!FiftyCsix!percent!of!firms!doing!cloud!today!got!there!by!proactively!pursuing!a!single!segment!of!the!market!–!SaaS!sales,!for!example!–!that!they!found!to!be!a!natural!extension!to!their!existing!business.!That!number!doubled!from!2013!when!28%!of!firms!charted!their!course!this!way.!Meanwhile!this!year,!36%!of!firms!said!they!pursued!multiple!cloud!business!model!segments!at!once!in!a!quest!to!get!to!market!rapidly,!down!from!57%!n!2013.!!The!trend!toward!a!more!measured!approach!suggests!that!companies!are!adopting!a!realistic!attitude!about!their!capabilities!and!resources!to!move!wholesale!into!a!new!business!model!arena!and!tackle!all!that!entails.!The!smallest!channel!firms!(70%),!in!particular,!opted!to!pursue!a!single!cloud!business!segment!that!complemented!their!current!activities,!compared!with!4!in!10!medium!and!largeCsized!entities,!respectively.!Smaller!firms!tend!to!be!more!riskCaverse,!given!considerations!around!cash!flow!and!credit,!so!this!finding!is!not!surprising.!!!As!mentioned!above,!extended!experience!with!a!new!business!line!is!both!the!avenue!to!improve!and!become!skilled!while!also!the!playing!field!for!trial,!error!and!tribulation.!The!cloud!transition!is!no!different!and!with!several!years!under!their!belts,!channel!firms!today!have!a!more!sobering!viewpoint!when!asked!about!the!various!obstacles!they!have!faced.!!

!


!!The!list!of!challenges!remains!largely!unchanged!from!years!past:!determining!the!correct!business!model,!balancing!cloud!vs.!nonCcloud!businesses,!initial!costs,!sales!restructuring!and!the!like!(see!chart!above).!But!the!number!of!respondents!distinguishing!these!challenges!as!“very!significant”!rose!by!an!average!of!about!10!percentage!points!across!all!items.!It!seems!more!time!with!cloud!has!revealed!its!complications.!So!despite!all!the!optimism!noted!in!this!year’s!findings!around!cloud!revenue!growth!and!profit!margins,!it!appears!that!the!channel!is!still!struggling!a!bit!with!settling!into!the!right!model.!!While!these!findings!were!largely!consistent!across!all!respondents,!small!channel!firms!identified!cash!flow!and!other!financial!considerations!to!be!a!more!significant!hurdle!than!medium!or!larger!firms.!And!confirming!that!more!experience!with!something!opens!you!up!to!more!growing!pains,!the!firms!with!mature!and!strategic!cloud!businesses!pegged!the!above!challenges!as!“very!significant”!in!greater!numbers!than!any!other!respondent!type.!!!

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!!Channel!firms!tackled!the!various!cloud!challenges!in!a!number!of!ways.!First,!through!investment,!!including!technical!and!sales!training,!the!pursuit!of!credit,!hiring!anew!etc.!They!also!exercised!restraint!as!a!tactic,!transitioning!only!a!portion!of!their!business!to!cloud!at!first!with!plans!to!scale!later!as!needed.!These!actions!were!undertaken!consistently!across!all!channel!firm!sizes,!but!with!a!greater!incidence!among!companies!identifying!as!cloud!mature.!!Most!interesting!is!the!white!flag!being!waved!when!it!comes!to!the!data!center!decision.!Early!on!in!the!cloud!march,!many!in!the!channel!proclaimed!that!they!would!build!and!operate!their!own!NOCs!to!serve!up!cloud!solutions!and!essentially!act!as!another!piece!of!the!public!cloud.!Today,!with!the!public!cloud!market!coalescing!around!several!mammoth!providers!such!as!Amazon,!Google!and!Microsoft,!the!channel!is!backing!down.!They!can!never!expect!to!reasonably!compete!on!pricing!for!cloud!compute!services!that!the!Amazons!of!the!world!drop!routinely.!This!year,!half!of!channel!firms!said!they!are!contracting!with!a!thirdCparty!provider!for!use!of!a!data!center!for!cloud,!compared!with!31%!in!2013.!Expect!that!percentage!to!rise!in!successive!years.!&&&&&

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!


Customer&Dynamics&!

End!user!customers!are!the!other!major!piece!of!the!cloud!equation!for!the!channel.!From!the!channel’s!

point!of!view,!both!demand!for!cloud!and!understanding!of!it!have!climbed!upward!among!customers.!

Compared!with!2013!when!a!net!63%!characterized!demand!as!either!high!or!very!high,!nearly!8!in!10!

did!so!this!year.!See!Section!1!for!a!more!detailed!breakdown!of!cloud!market!size!and!projections!for!

future.!

!

Small!channel!firms!are!hearing!the!

customer!cloudCclamoring!twice!as!loudly!

as!their!mediumC!and!largeCsized!

brethren.!Two!thirds!of!small!firms!

reported!the!demand!they!are!seeing!as!

“very!high,”!compared!with!a!third!of!the!

other!two,!respectively.!As!discussed!in!

Section!4!of!this!report,!smaller!channel!

firms!–!which!represent!the!plurality!of!

the!channel!ecosystem!–!tend!to!sell!to!

SMB!companies!like!themselves.!And!

cloud!opens!doors!for!SMBs!that!might!

not!open!in!the!past;!namely!access!to!

applications!and!other!tools!that!are!

otherwise!costCprohibitive!in!their!

conventional!softwareClicensing!format.!Hence!the!model’s!attractiveness!and!one!potential!reason!for!

high!demand.!

!

Small!channel!firms!also!credited!their!customers!as!more!knowledgeable!in!general!around!cloud,!

which!is!a!big!change!from!five!years!ago!when!CompTIA!research!found!essentially!little!awareness!of!

what!cloud!was!at!the!customer!level.!!

!

Greater!demand!brings!its!own!set!of!challenges,!chiefly!around!capacity!to!deliver.!Unless!a!channel!

firm!has!adequate!capacity!and!skills!to!meet!that!demand,!they!will!have!to!either!turn!away!or!lose!

business.!This!was!a!problem!in!2014;!with!67%!of!channel!firms!claiming!that!customer!demand!for!

cloud!solutions!outstripped!their!ability!to!deliver!in!certain!instances.!That!is!up!sharply!from!4!in!10!

that!ran!into!the!same!problem!in!2013.!Also!more!prevalent!this!year:!losing!a!cloud!deal!to!another!

solution!provider,!vendor!or!distributor,!which!half!of!respondents!experienced!vs.!a!third!last!year.!

Clearly!with!demand!growing,!the!players!are!scrambling!a!bit!to!determine!best!routes!to!market!and!

optimal!levels!of!internal!staffing.!In!particular,!the!demandCtoCcapacity!balancing!act!will!be!a!struggle.!!

!

With!customers!curious!about!cloud!and!demand!up,!fresh!conversations!have!been!sparked!between!

channel!firms!and!their!existing!clients,!while!doors!are!opening!to!potential!new!customers!seeking,!in!

some!instances,!a!better!mousetrap!to!meet!their!technology!needs.!

!

Case!in!point?!Seven!in!10!channel!firms!say!that!cloud!has!generally!strengthened!their!customer!

relationships,!up!slightly!from!last!year,!with!just!15%!on!average!claiming!it!has!weakened!ties.!This!is!

encouraging!news!given!the!fact!that!many!in!the!channel!have!feared!publicly!that!cloud!would!drive!a!

wedge!between!them!and!their!customers.!There’s!been!rampant!apprehension!about!such!ill!effects!as!

!"#$

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!


a!resurgence!in!vendor!direct!sales!and!end!user!customers!choosing!a!selfCservice!model!for!their!IT!solutions,!i.e.!procuring!SaaS!applications!online.!And!while!both!of!these!trends!are!happening!to!a!certain!extent,!CompTIA!data!suggest!not!at!such!dire!expense!to!most!of!the!channel,!especially!those!that!have!reached!a!high!level!of!cloud!maturity!today!and!intend!to!remain!committed.!!!!!!!!

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